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This study investigates the impact of political stability and other governance indicators ‎on the size of the shadow economy across Asian countries using panel data estimations. ‎While the existing literature acknowledges the critical role of institutional quality and ‎governance in shaping the informal sector, most prior research has relied on cross-sectional analyses with limited observations. Consequently, evidence based on within-country variations remains scarce. Employing a balanced panel of 34 Asian economies, ‎this paper applies both Ordinary Least Squares (OLS) and Generalized Method of ‎Moments (GMM) estimators to ensure robustness of results. The empirical findings ‎provide strong evidence that higher levels of political stability, government ‎effectiveness, and the absence of violence are associated with a smaller shadow ‎economy. Conversely, declining government stability tends to expand the informal ‎sector. Overall, the results highlight the importance of political and institutional stability ‎as key determinants in reducing the scale of the shadow economy in Asia.‎

Keywords: Political Stability, Shadow Economy, Governance Indicators, Government Effectiveness, ‎Panel Data.‎

     

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